Retail

Generative AI in Retail: Impact on Holiday Shopping in 2023

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Author(s)

Manish Vora

Business Unit Head, Manufacturing, Retail & Consumer Products

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Key Points

The 2023 holiday season will showcase the transformative potential of Generative AI in retail.
The focus will be on enhanced customer experience through personalization, innovative product discovery, improved customer service and streamlined fulfillment processes.
Success in these initiatives will be vital to fostering consumer optimism beyond the holiday season.

Anticipation is building for what is projected to be an extraordinary holiday season. According to the National Retail Federation, spending during the 2023 holiday season is set to reach new heights, with an estimated 3 to 4 percent growth over 2022, totaling an impressive USD 966.6 Billion.¹ While this growth is slightly more conservative than the previous year's 5.4 percent, it mirrors the prevailing economic uncertainty as we return to pre-pandemic norms. Nonetheless, consumer confidence remains robust, with approximately 74 percent of shoppers planning to match or surpass their 2022 spending levels.²

The dynamics of this year's spending spree are expected to undergo a notable shift. Consumers are adopting a more measured approach, spreading out their purchases and actively seeking bargains. With an extended shopping window, retailers must elevate their customer experience to unprecedented levels, setting themselves apart from the competition. Embracing Generative AI (Gen AI) emerges as a pivotal strategy for retailers aiming to meet and exceed these evolving consumer expectations.

Gen AI will revolutionize how retailers reach, target and engage customers, ushering in a new era of hyperpersonalized offers and streamlined supply chain optimization. As the first holiday season where the technology has been widely available, 2023 will be an acid test for retailers’ Gen AI investments, influencing their immediate performance and the retail landscape in 2024 and beyond. Let's delve into how this transformative journey is set to unfold.

Driving Sales through Hyperpersonalization

Concerns about higher prices this holiday season are prompting consumers to make adjustments to stretch their budgets. People are shopping earlier, spreading out their purchases and seeking promotional deals, with a significant 66 percent planning to shop on promotional days compared to 49 percent in 2022.³

Gen AI gives retailers a golden opportunity to appeal to these instincts by delivering hyperpersonalized promotions in real-time. A notable example is Amazon, with the company leveraging data from its subscriber base to improve ad targeting while allowing merchants to drive promotions at speed. Such systems can process data swiftly, enabling instant pricing decisions based on actual demand or producing thousands of ad variations tailored to individual users.

The pursuit of personalization is also fueling more experiential personalized concepts. French retailer Carrefour, for instance, recently launched a ChatGPT-powered chatbot capable of providing personalized shopping ideas to customers based on their budget, past purchases and other preferences. Similar concepts will likely inspire consumers seeking unique and thoughtful gifts for their loved ones.
Enabling Next-generation Product Discovery

Gen AI is helping retailers enhance engagement beyond price and preferences; it is fundamentally re-shaping product discovery by influencing what consumers see and read. With online-only retailers becoming the preferred format for holiday shopping (63 percent) and consumers navigating inflation by budgeting more for fewer gifts, optimized product discovery will prove integral to making the right impression and keeping the holiday spirit alive. ⁴

Google is leading the way in this regard, helping merchants create and manage product images using Gen AI tools.⁵ A text-to-image Gen AI model allows sellers to experiment with different visuals, placing products in various backdrops such as holiday-themed scenes. Retailers are also leveraging Gen AI to re-write product descriptions, providing potential customers with more relevant information and aiding decision-making through tools that highlight priority features and condense customer reviews into concise, digestible summaries.

The impact of these concepts can prove transformative. eBay, for example, experienced an 80 percent customer satisfaction score – among the highest the brand has seen for new feature launches – after implementing a tool based on OpenAI that automatically generates product descriptions based on sellers' data on a product category, condition, color or brand.⁶

Such capabilities are not exclusive to large retailers. According to one study, 44 percent of small to midsize businesses plan to use Gen AI tools as part of their 2023 holiday strategies for creating marketing content, demonstrating the industry-wide impact Gen AI is poised to make this season.⁷
Striking the Right Balance in Customer Service

Gen AI is set to revolutionize customer service this holiday season. Its ability to understand and respond to conversational inquiries positions it as a natural technology to enhance retailers’ chatbots and empower human employees to deliver next-generation customer service.

Addressing a growing remit of customer queries, Gen AI chatbots are becoming increasingly sophisticated. In doing so, they are transforming how retailers tackle the influx of traffic, sales and customer service inquiries during winter. Next-generation knowledge engines, coupled with Gen AI, provide instant and tailored responses to customer queries with improved accuracy and efficiency. While only 39 percent of consumers engaged with their favorite brands through messaging during previous shopping seasons, a staggering 85 percent are open to doing so in the 2023 holiday season, underscoring the transformative potential at hand.⁸

However, retailers must recognize that this should not be a one-way street. Research indicates that 70 percent of consumers prefer interacting with a human, even when engaging with an automated chatbot. Therefore, customer service associates must be empowered with insights garnered from Gen AI tools, ensuring a balance between human touch and technological efficiency.⁹
Streamlining Fulfillment to Exceed Expectations

Supply chain bottlenecks and inventory issues are relatively normalized compared to 2022, providing a solid foundation for meeting customer expectations around fulfillment. Gen AI-powered tools are proving invaluable as retailers strive to offer enhanced visibility, control and convenience to end customers.

AI-powered systems are approaching near-perfect operational efficiency, accurately predicting demand and shaving off valuable time from shipping and fulfillment processes. Such capabilities will be particularly crucial for winning the loyalty of Gen Z customers, as around half of them expect same-day or next-day delivery this holiday season.¹⁰ Younger consumers are more averse to deliveries over multiple days than their older counterparts.

Enhancing Retail Customer Experience through Gen AI

The potential for Gen AI-driven opportunities in retail is boundless. Rather than representing a blueprint for the future, the 2023 holiday season will be defined by experimentation as brands seek to harness the transformative power of Gen AI. As retailers navigate and shape this new landscape, the focus will be on prioritizing personalization, enabling all-new forms of product discovery, delivering next-generation levels of service and streamlining fulfillment – all powered by Gen AI.

The success of these initiatives will ultimately rest on one factor – their ability to enhance customer experience. Should they do so, retailers can expect consumer optimism extending far beyond the holiday season.

Click here to dive into the transformative potential of Generative AI. To know how you can embark on a retail revolution powered by Generative AI, talk to our experts.